Piper Jaffray Upgrades Renewable Energy After New EPA Proposal

In a report published Monday, Piper Jaffray analyst Brett Wong upgraded the rating on Renewable Energy Group Inc (NASDAQ: REGI) from Neutral to Overweight, while raising the price target from $11 to $15, following the release of the EPA proposal of the Renewable Fuel Standard mandate through 2016/17 on May 29.

"On Friday, the EPA proposed the highly anticipated Renewable Fuel Standard (RFS) volumes for 2014 – 2016/17, proposing sequential growth through 2017. Importantly by the EPA providing multiple years of the RVO removes the regulatory overhang that has historically impacted shares of REGI," Wong said.

In increase proposed in the advanced biofuel category, along with the 20 percent carryover, is expected to drive biodiesel demand "beyond the biomass-based diesel RVO," which is in turn expected to lead to higher margins for the company, despite a potential increase in biodiesel imports.

In addition, margins are also expected to be driven by higher RINs, following the EPS proposal. "In order to subsidize the marginal vegetable oil producers RIN prices need to increase, which we have already seen with expectations the mandate would increase," the Piper Jaffray report added.